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Jamba, Inc. (JMBA): Is This Stock Destined for Greatness?

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Investors love stocks that consistently beat the Street without getting ahead of their fundamentals and risking a meltdown. The best stocks offer sustainable market-beating gains, with robust and improving financial metrics that support strong price growth. Does Jamba, Inc. (NASDAQ:JMBA) fit the bill? Let’s take a look at what its recent results tell us about its potential for future gains.

Jamba, Inc. (NASDAQ:JMBA)

What we’re looking for
The graphs you’re about to see tell Jamba, Inc. (NASDAQ:JMBA)’s story, and we’ll be grading the quality of that story in several ways:

Growth: Are profits, margins, and free cash flow all increasing?

Valuation: Is share price growing in line with earnings per share?

Opportunities: Is return on equity increasing while debt to equity declines?

Dividends: Are dividends consistently growing in a sustainable way?

What the numbers tell you
Now, let’s take a look at Jamba, Inc. (NASDAQ:JMBA)’s key statistics:

JMBA Total Return Price Chart

Source: JMBA Total Return Price data by YCharts.

Passing Criteria 3-Year* Change Grade
Revenue growth > 30% (24.2%) Fail
Improving profit margin 35.1% Pass
Free cash flow growth > Net income growth 431.8% vs. 92.7% Pass
Improving EPS 93.8% Pass
Stock growth (+ 15%) < EPS growth 69.6% vs. 93.8% Pass

Source: YCharts. * Period begins at end of Q4 2009.

JMBA Return on Equity Chart

Source: JMBA Return on Equity data by YCharts.

Passing Criteria 3-Year* Change Grade
Improving return on equity 76.2% Pass
Declining debt to equity No debt Pass

Source: YCharts. * Period begins at end of Q4 2009.

How we got here and where we’re going
Despite showing unprofitability on its earnings reports, the free-cash-flow positive Jamba, Inc. (NASDAQ:JMBA)has moved in the right direction in virtually all respects except for revenue. That’s earned it an unexpectedly strong six out of seven passing grades, a true rarity for a company with red ink on the bottom line. It’s proof positive that what’s ultimately more important to investors is making money rather than simply making sales. Investors clearly believe that this momentum will continue, but let’s dig a little deeper to make sure that this juice isn’t going to turn sour.

At the start of the year, investors were asking whether Jamba could keep growing in the face of intensifying competition, most notably from Starbucks Corporation (NASDAQ:SBUX), which has moved into juices through several acquisitions in 2012. There are a few ways to do that independently, but the word “buyout” was on Jamba, Inc. (NASDAQ:JMBA) watchers’ lips. A large fast-food franchise could easily gobble up the small-cap star, and my fellow Fool Dan Caplinger notes that Monster Beverage Corp (NASDAQ:MNST) could enjoy some healthful synergies by expanding its energy-enhanced juice lines into more standard juice fare. This might help ease some regulatory scrutiny, and provide a storefront presence — but Starbucks might be the better buyout partner in the end. Both companies compete for the same limited consumer appetites in the same fast-food business model, and Jamba, Inc. (NASDAQ:JMBA)’s comparatively minuscule sales volume would likely be enhanced by Starbucks Corporation (NASDAQ:SBUX)’ branding and marketing expertise.

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